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Best Ways to Avoid Taxpayer ID Fraud

Taxpayer ID fraud is a growing problem affecting an increasing number of taxpayers each tax season, with the value being estimated to hit $21 billion this year.


Taxpayer ID fraud occurs when an individual uses your stolen Social Security number (SSN) in order to file a tax return and claim a fraudulent refund. In most cases, the fraudster will file a return as early in the year as possible in order to be the first to file under that SSN and get the refund. The legitimate taxpayer won’t find out that he or she is a victim until attempting to e-file their legitimate return; the IRS’ e-filing system will reject the legitimate return as a duplicate filing.

There are several steps that an individual can take in order to avoid this situation:

Always make sure that the IRS has the most recent contact information for you on file.

If you move during the year, you can file Form 8822 Change of Address in order to update the IRS’ information. This ensures that any and all communication that comes to you from the IRS goes to the correct place.

The same goes with any entity that is likely to send you a tax reporting form such as a W-2, 1098, 1099, or K-1. Whenever your contact information changes, be extra diligent to make sure any employers, banks, brokerage firms, lenders, educational institutions, and so forth all have your new contact information. This can take some time; however, the amount of time required will pale in comparison to mopping up a fraudulent tax return. If a reporting document ends up in an old mailbox, it can also end up in the wrong hands.

Don’t procrastinate when it comes to filing your tax return!

It is impossible to overstate this reality. Procrastination is what enables thieves to pull off the fraud. As soon as you believe you have all of the necessary information to file your tax return, get it prepared and filed. Most taxpayers have all of the information they need in order to file their returns before the end of February, yet most taxpayers don’t file until the end of March or, worse, April or beyond.

If you accidentally file too soon and later find out that you missed a piece of information, it’s no problem. Simply file an amended return (form 1040X) to make the correction with the IRS. Contrary to conventional wisdom, this does not necessarily increase your chances of an audit, especially if the change is made due to a form filed with the IRS by a third-party, such as a W-2 or 1099. Just know that, if you file an amended return after April 15 (or the due date if April 15 falls on a weekend or holiday), it restarts the three-year statute of limitations on that year’s return.

Follow up with any entities who you believe should send you a reporting form and don’t.

For the 2015 tax year, most forms are required to be delivered to recipients by February 1, 2016. If it gets to be mid-February and you still believe you’re waiting on a form, contact the reporting entity to determine the form’s whereabouts. If you have reason to believe it might have been intercepted, get your return prepared as soon as possible.

Always file a tax return, even if you’re not required.

This often happens with younger taxpayers who only receive a small W-2. Since they neither owe taxes nor are receiving a refund, they’ll simply not file a tax return. In the past, this had little downside. In today’s world, however, this creates a gap that thieves can use to obtain a fraudulent refund. Therefore, even if no tax or refund is likely to result, always simply file a provisional tax return so that the IRS has one on record for your SSN. Then, if a thief tries to file under your SSN, the IRS will disallow it.

If you live in Florida, Georgia, or the District of Columbia, get an Identity Protection PIN from the IRS. If you have an IP PIN attached to your SSN, no tax return can be filed in your name without that PIN, which is mailed to you in December of the applicable tax year. This adds an extra layer of protection.

Hopefully, by taking the above steps, you’re able to avoid any instance of taxpayer ID fraud affecting you. However, if the unthinkable does happen, the IRS has published a good guide to identity theft. It’s recommended that you contact a qualified CPA or EA to assist you in filing the appropriate forms. While rectifying the theft can take time—in some cases up to a year—it is fixable and the IRS, being well-aware of the problem, has systems in place to assist.

For more tax planning information, check out our white paper.


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